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BS Accountancy (BSA)

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Chapter 11
Shareholders’ Equity (Part 2)
1. On settlement (distribution) date, any difference between the carrying amounts of the property
dividend payable and the non-cash asset distributed is
a. ignored
b. recognized in profit or loss
c. recognized directly in retained earnings
d. recognized but subject to a limit

2. Non-current assets declared as property dividends are

a. reclassified as “non-current assets held for distribution to owners” if the conditions under
PFRS 5 are met.
b. reclassified as current assets.
c. not reclassified but presented separately from the other assets.
d. not reclassified but disclosed only.

3. If shareholders are given a choice of receiving either property dividends or cash dividends, the
entity shall
a. estimate the dividend payable by considering both the fair value of each alternative and the
associated probability of shareholders selecting each alternative.
b. treat the dividends declared as if they are cash dividends.
c. treat the dividends declared as if they are property dividends.
d. not account for the dividends until their final settlements.

4. Which of the following may cause a change in the total shareholders’ equity?
a. “small” share dividends d. “large” share dividends
b. share splits e. none of these
c. recapitalization

5. Imagine you are a CPA. You are preparing the financial statements of your company for the year
ended December 31, 20x1. The board of directors declared dividends on February 1, 20x2. The
dividend declaration is not subject to further approval. The financial statements were authorized
for issue on April 1, 20x2. How should the dividends declared be accounted for in the 20x1
financial statements?
a. included in current liabilities c. disclosed only
b. included in noncurrent liabilities d. neither accrued nor disclosed

6. Ray Corp. declared a 5% stock dividend on its 10,000 issued and outstanding shares of ₱2 par
value common stock, which had a fair value of ₱5 per share before the stock dividend was
declared. This stock dividend was distributed 60 days after the declaration date. By what
amount did Ray’s current liabilities increase as a result of the stock dividend declaration?
a. 0 b. 500 c. 1,000 d. 2,500

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7. Effective April 27, 20x1, the stockholders of Bennett Corporation approved a two-for-one split of
the company's common stock, and an increase in authorized common shares from 100,000 shares
(par value ₱20 per share) to 200,000 shares (par value ₱10 per share). Bennett's stockholders'
equity accounts immediately before issuance of the stock split shares were as follows:

Common stock, par value ₱20; 100,000 shares authorized;

50,000 shares outstanding ₱1,000,000
Share premium (₱3 per share on issuance of ordinary shares) 150,000
Retained earnings 1,350,000

What should be the balances in Bennett's additional paid-in capital and retained earnings accounts
immediately after the stock split is effected?
Share premium Retained earnings
a. ₱ 0 ₱ 500,000
b. ₱ 150,000 ₱ 350,000
c. ₱ 150,000 ₱1,350,000
d. ₱ 1,150,000 ₱ 350,000

8. On July 1, 1999, Bart Corporation has 200,000 shares of ₱10 par ordinary share outstanding and
the market price of the stock is ₱12 per share. On the same date, Bart declared a 1-for-2 reverse
stock split. The par of the stock was increased from ₱10 to ₱20 and one new ₱20 par share was
issued for each two ₱10 par shares outstanding. Immediately before the 1-for-2 reverse stock
split, Bart's share premium was ₱450,000. What should be the balance in Bart's share premium
account immediately after the reverse stock split is effected?
a. 0 b. 450,000 c. 650,000 d. 850,000

9. The stockholders' equity section of Brown Co.'s December 31, 20x1, balance sheet consisted of
the following:

Ordinary shares, ₱30 par, 10,000 shares authorized and outstanding ₱300,000
Share premium 150,000
Retained earnings (deficit) (210,000)

On January 2, 20x2, Brown put into effect a stockholder-approved quasi-reorganization by reducing

the par value of the stock to ₱5 and eliminating the deficit against share premium. Immediately after
the quasi-reorganization, what amount should Brown report as share premium?
a. (60,000) b. 150,000 c. 190,000 d. 400,000

10. On January 2, 2000, the board of directors of Gimli Mining Corporation declared a cash dividend
of ₱1,200,000 to stockholders of record on January 18, 2000, and payable on February 10, 2000.
The dividend is permissible by law in Gimli's state of incorporation. Selected data from Gimli's
December 31, 1999, balance sheet follow:

Accumulated depletion ₱ 200,000

Capital stock 1,100,000
Additional paid-in capital 800,000

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Retained earnings 500,000

The ₱1,200,000 dividend includes a liquidating dividend of

a. 800,000. b. 700,000. c. 600,000. d. 200,000.

"Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble
of its own." - (Matthew 6:34)

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SOLUTIONS:

1. B
2. A
3. A
4. E
5. C

6. A - Stock dividend payable is not a liability.

7. C
Share splits do not affect total shareholders’ equity. The aggregate par value of outstanding shares
remains the same after a share split. The entry to record the share split is as follows:
Apr. 27, Common stock (old) (50,000 sh. x ₱20) 1,000,000
20x1
Common stock (new) (100,000 sh. x ₱10) 1,000,000

8. B Share premium is not affected by share splits.

9. C

Solution:
The entries to record the quasi-reorganization are as follows:
Jan. 2, Share capital [(₱30 – ₱5) x 10,000 sh.] 250,000
20x2 Share premium 250,000
to record the reduction of par value
Jan. 2, Share premium 210,000
20x2 Retained earnings
to wipe out the deficit 210,000

Share premium - Dec. 31, 20x1 150,000

Credit (see journal entries above) 250,000
Debit (see journal entries above) (210,000)
Share premium after quasi-reorganization 190,000

10. B (1,200,000 dividends declared – 500,000 retained earnings) = 700,000

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